Tuialii v FCQ Construction Limited

[2021] NZHC 965

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-522

[2021] NZHC 965

UNDER

The Property Law Act 2007

IN THE MATTER OF

an application to sustain a caveat

BETWEEN

KIMA ELIZABETH TUIALII and ALEXANDER MICHAEL TUALA

Applicants

AND

FCQ CONSTRUCTION LIMITED

Respondent

Hearing:	3 May 2021 at 10:00am
Appearances:	Paul M Hunter for the Applicants Cherie Holland for the Respondent
Judgment:	3 May 2021

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Simpson Western (Paul Hunter), Takapuna, Auckland, for the Applicants Righteous Law (Helen McDermott/Cherie Holland), Auckland, for the Respondent

TUIALII and TUALA v FCQ CONSTRUCTION LIMITED [2021] NZHC 965

[1]This is a caveat case. The interest claimed in the caveat is:

By virtue of an agreement for sale and purchase of real estate dated 5 January 2021 between the said registered proprietor as vendor and the caveator as purchaser for the purchase of Lot 3 DP38985 in the subdivision of Lot 16 DP38985.

The respondent is the registered proprietor of a property at 718 Massey Road, Māngere, Auckland. It is subdividing that property into three lots. Apparently, title has not yet issued. Under the agreement of 5 January 2021, the vendor agreed to sell Lot 3 in that subdivision to the applicants for $901,500. Settlement of the sale was to take place on 29 January 2021 “or CCC and title issued whichever is later”. The parties used the ADLS/REINZ Agreement for Sale and Purchase of Real Estate, Tenth Edition 2019 (2). The agreement is subject to conditions recorded on the front page of the agreement. For this case, the important condition is for finance which was to be satisfied within 18 working days. There were also conditions as to a LIM and building reports. The 18 days for satisfying the finance condition meant that notice of satisfaction of the condition had to be given by 5 pm on 29 January 2021.

[2]        On 27 January 2021 at 2.49 pm, the purchasers’ lawyer emailed the vendor’s lawyer:

Good afternoon,

We have been engaged by the purchaser to act on this transaction. Jenna Dombroski of our office is named on the agreement – she is currently on leave returning on Monday 1st February.

We note that you are acting for the Vendor.

We note that the agreement is conditional upon our client’s confirmation of Finance, LIM and building reports as well as Solicitors approval provision, against the prospect of settlement being completed on the 29th January 2021, or the issue of CCC and Title, whichever is the later.

We have had discussions with our client and can confirm satisfaction of Clause 21.0 of the Agreement (Solicitors approval).

We are advised that the CCC in respect of the property has issued, but our recent search of the title has suggested that Title has not yet issued.

Could you please urgently provide us with –

a.   Copy of the issued CCC Certificate

b.   Copy of the Plan of subdivision

c.   An update regarding the issue of title

d.   An indicative settlement date

Our client has had approval of finance to complete the transaction, which is now conditional on the issue of title.

We await your advice. (Emphasis added)

[3]        On the same day, the purchasers’ lawyer sent another email advising that their client would not be proceeding with a builder’s report and asking for an update on progress on the subdivision. There was a further email enquiring about progress on the subdivision. The vendor’s lawyer advised that title was likely to issue in about two months. There was a further email from the purchasers’ lawyer recording the purchasers’ understanding that title would issue earlier, and asking for a plan of the subdivision.

[4]On 29 January 2021, at 5.24 pm, the vendor’s lawyer sent an email saying:

We note the finance condition has not yet been satisfied. We have been instructed to cancel the agreement on the basis of non-satisfaction of the finance condition and the agreement is now at an end.

With that, the purchasers caveated the title. Gault J made an order on 12 April 2021 sustaining the caveat pending further order.

[5]        The vendor’s position is that it has effectively and validly cancelled the agreement for non-satisfaction of the finance condition.

[6]        The principles on caveat applications are well known. I record that it is necessary for the applicants in this case to show a reasonably arguable case for the interest they have claimed. If I were to not uphold their claim, I would have to do so on the basis that it is patently clear that they do have the interest they claim in the land. I also record that the court has a residual discretion – a matter that Ms Holland referred to.

[7]        The provisions in the agreement as to conditions are important. Clauses 9.1(1) and 9.10 say:

9.0Conditions and mortgage terms

9.1Finance condition

(1)If the purchaser has identified that finance is required on the front page of this agreement, this agreement is conditional upon the purchaser arranging finance for such amount as the purchaser may require from a bank or other lending institution of the purchaser’s choice on terms and conditions satisfactory to the purchaser in all respects on or before the finance date.

…

9.10Operation of conditions

If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:

(1)The condition shall be a condition subsequent.

(2)The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.

(3)Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.

(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.

(5)If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement, the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.

(6)At any time before this agreement is avoided, the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.

[8]        Under clause 9.1(1), to satisfy the finance condition, the purchaser must “arrange finance for such amount as the purchaser may require from a bank or other lending institution of the purchaser’s choice on terms and conditions satisfactory to

the purchaser in all respects on or before the finance date.” Ms Tuialii, one of the purchasers, says that they applied for finance to buy the property through the Taranaki Savings Bank and they received finance approval from the bank on 26 January 2021. “Arranging finance” does not mean that the purchaser must have drawn down the finance within the time for satisfying the finance condition. “Arranging finance” in conveyancing practice is typically taken as meaning that the purchaser has arrangements in place so that at the time of settlement they will be able to draw down the loan. Again, in practice, banks and lending institutions consider applications for credit and then advise the purchaser and the purchaser’s lawyer whether finance is approved. It is standard conveyancing practice that advice from a bank or lending institution that a loan has been approved is sufficient to constitute “arranging finance” under a finance clause such as clause 9.1(1).

[9]        Notice of satisfaction must be given under clause 9.10(4) of the agreement.    I note that the email of 27 January was given within the time for notifying that the condition was satisfied. The matter then comes down to the language used by the purchasers’ lawyer.

[10]      For the purchasers, Mr Hunter has referred to decisions where the courts have recognised that the agreement does not provide for any specific form to be used, such as a Notice of Fulfilment of Condition. The decisions also show that no particular form of words is required. Generally the court will take a broad view of the language used to show that a condition has been satisfied.1 For my part, I do not need to put any special reliance on those decisions because in my view the natural meaning of the words used informs the vendor that the purchasers had arranged finance for the purchase.

[11]      The vendor does not accept that position. It claims that there is some ambiguity in the email of 27 January 2021. It also suggests that the email was conditional. The vendor’s case is that the words “which is now conditional on the issue of title” mean

1      Coughlan v Cox [2014] NZCA 617, 16 NZCPR 66; Sicilian Estates Ltd v Deavoll (2007) 8 NZCPR 561; Sagar Properties Ltd v Tropical Origin Ltd [2014] NZHC 1771; and City Property Holdings Ltd v British Mercantile and Loan Trust Company Ltd HC Auckland CIV 2006-404- 6807, 31 January 2007.

that the approval of finance is conditional, and a conditional offer of finance cannot constitute “arranging finance” under the clause.

[12]      That is not the natural meaning of the email of the purchasers’ lawyer. The words “which is now conditional on the issue of title” come immediately after “transaction.” The words in the clause clearly refer to the transaction — not to the approval of finance. Moreover, when we consider the meaning of the sentence as a whole, the “now” indicates a change in the status of the agreement. Up until then it had been conditional on finance. With the sending of the email the agreement is no longer conditional on finance but is conditional only on the issue of title — a matter for which the vendor is responsible, not the purchasers. The meaning which the vendor tries to put in the agreement is not tenable.

[13]      Ms Holland, however, suggested that it does not matter what I think because it is a matter of subjective interpretation. If the vendor thinks that the email is not a notice of satisfaction of a condition, that is good enough because no one else’s judgment counts. She referred to: Connell Street Ltd v Purewal BS and JK Ltd, Boyes v Stowers, and Stock v Wallis.2 None of these decisions support a subjective interpretation of notices of satisfaction of finance conditions. They are consistent with the standard approach of the court, which is objective. The standard approach is that notices given under a contract are construed objectively according to what a reasonable reader, aware of all the circumstances, would understand. An authority for that is Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd.3 The speeches of the majority make it clear that the test is what a notice given by a lessee to a lessor would mean to a reasonable reader in the position of the lessor. The subjective understanding of the author of the notice, or of the recipient, was irrelevant. The case is well-known because of the speech of Lord Hoffmann on the importance of interpreting documents in context, and that presupposes an objective approach.

[14]      This was an ordinary conveyancing transaction. The email sent by the purchasers’ lawyer is the kind that would be sent by many conveyancers on ordinary

2      Connell Street Ltd v Purewal BS and JK Ltd (2010) 8 NZCPR 587 (HC); Boyes v Stowers DC Tauranga CIV-2008-070-000410, 1 December 2008; and Stock v Wallis [1996] DCR 452.

3      Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (HL).

day-to-day transactions where purchasers need to obtain finance to complete a purchase. It would be stultifying the law if I were to say that the email sent in this case did not amount to effective notice of satisfaction of the finance condition.

[15]      Accordingly, I find that the vendor could not cancel the agreement for non- satisfaction of the condition because notice of satisfaction had been given in time, and under the notice provisions in the agreement. It is, of course, well established that a purchaser has a caveatable interest under an unconditional agreement for sale and purchase.4 The Court of Appeal has also said in Bevin v Smith,5 that a purchaser under a conditional agreement may also have a caveatable interest in land. At the stage when the purchasers lodged their caveat in this case, they were claiming under an arguably unconditional agreement for sale and purchase.

[16]      Ms Holland also submitted that in the discretion of the court I should not uphold the caveat, and that the caveators should be left to their remedy in damages. Her case was that they could be readily compensated by the return of the deposit to them. The remedy for a purchaser in this case is to seek specific performance of the agreement for sale and purchase. That is important in a case such as this, where there is a rising property market. They risk being worse off if they were not able to complete this purchase because they may have to go into the market and pay more for a comparable property. There is no reason why the vendor should be able to escape the agreement when he does not have any good reason for treating the finance condition as unsatisfied. If I were to exercise the discretion not to uphold the caveat, that would be tantamount to saying that even if they succeed on the merits the court would still not order specific performance in its discretion. There is nothing by way of evidence that could justify me coming to the view that specific performance would not be an appropriate remedy for the purchasers.

[17]      Accordingly, I uphold the caveat. It is a condition of the order that the caveators are to begin a proceeding for specific performance within 20 working days, that is, by 31 May 2021. They are also required to prosecute their claim with due diligence.

4      Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.

5      Bevin v Smith [1994] 3 NZLR 648 (CA).

[18]      The respondent is to pay the applicants’ costs and disbursements. I trust that counsel will be able to agree costs but if they cannot, memoranda may be filed and I will decide costs on the papers.

…………………………………….

Associate Judge R M Bell